Employment costs up 2.6 percent in 2008, lowest on record

WASHINGTON (Reuters) - Employment costs rose last year at the slowest pace on record, government data on Friday showed, as a painful recession pinched compensation amid soaring unemployment.

The Labor Department''s Employment Cost Index, a broad measure of wages and benefits, increased by 2.6 percent in the 12 months to December, down from a 3.3 percent rise in 2007. It was the weakest reading since records began in 1982.

Employment costs in the fourth quarter were up by 0.5 percent, a marked deceleration from 0.7 percent increases in the previous three quarters, and less than the 0.7 percent rise that had been forecast by economists polled by Reuters.

It was also the smallest quarterly increase since March 1999, when employment costs were up 0.4 percent.

Wages and salaries mounted 0.5 percent in the fourth quarter while benefits were up 0.4 percent. Companies have been stinting on overtime and cutting back on workers'' benefits like pension contributions to shield profits.

(Reporting by Alister Bull; Editing by Chizu Nomiyama )